* Tough decisions unresolved on offsetting tax cut costs
* Democrats, Republicans in high-stakes fight - again
By Richard Cowan and Donna Smith
WASHINGTON, Feb 7 Republican and
Democratic leaders accused each other of bad faith negotiations
on Tuesday as both parties played hardball in talks
to extend a tax cut for 160 million U.S. workers.
Both sides agree the payroll tax cut should be renewed for a
full year before it expires on Feb. 29, and its extension has
been seen as a foregone conclusion. Moody's Analytics chief
economist Mark Zandi told Congress that the U.S. economic
recovery "could easily be derailed" if the payroll tax cut was
allowed to expire.
But the parties are far apart over how to pay for it and the
rancor of election-year politics complicates lawmakers' work.
"We are right back to where we were last December," when
negotiations broke down during a previous payroll tax battle,
Senate Majority Leader Harry Reid complained to reporters.
One Republican negotiator, House Ways and Means Committee
Chairman Dave Camp, said that the harsh rhetoric of both
Democratic and Republican leaders, who accuse one another of
standing in the way of a deal, was not helpful.
Both parties are betting that the other side will blink
first, a replay of the brinkmanship during last year's budget
battles that brought the U.S. government to the edge of a
shutdown three times and cost the country its coveted AAA credit
rating from the Standard & Poor's rating agency.
Reid criticized Republican efforts to roll back some
environmental regulations as part of the payroll tax cut effort.
He characterized the Republican strategy as: "'We'll give
you a payroll tax cut ... if you will let us continue to put
things like arsenic and mercury in the water.'"
His Republican counterpart in the Senate, Mitch McConnell,
retorted that if Reid was suggesting that Republicans were only
willing to extend the tax cut if "they're allowed to poison
Americans' drinking water, then I think it's pretty safe to say
that they (Democrats) are the ones who've veered away from good
The fight, a continuation of last year's bitter dispute over
President Barack Obama's payroll tax cut initiative, carries
major ramifications for the U.S. economy and for Democratic and
Republican re-election prospects in November.
Extending the lower tax rate through 2012 would give the
average U.S. family about $1,000 more in spending power. That in
turn would inject more than $100 billion into the U.S. economy
at a time when it is showing signs of strengthening.
Some economists think the legislation could add as much as
one percentage point to economic growth this year if it also
extends long-term jobless benefits, as is planned.
TIME RUNS SHORT
Only three weeks remain before the 4.2 percent payroll tax
ratchets up to 6.2 percent, but in fact the deadline is even
closer because Congress is scheduled to begin a nine-day recess
starting on Feb. 18.
By next week, Democratic and Republican congressional aides
are hoping that a bipartisan negotiating group will show
progress toward a deal.
But Democrats, who feel they have the upper hand in the
negotiations after scoring big with voters during last
December's fight, could hold out, leaving it to House and Senate
leaders to craft a final deal.
The fight in Congress is over how to cover the
cost - roughly $170 billion - of continuing the tax cut for 10
more months, along with existing unemployment benefits and
keeping Medicare doctor payments at current rates.
As Republican and Democratic leaders in the Senate and House
of Representatives jousted with each other, a 20-member
bipartisan panel of negotiators met for the fourth time.
They argued over whether to continue a pay freeze on federal
workers for another year, saving around $26 billion, and whether
to squeeze $31 billion out of the Medicare healthcare program
for the elderly.
One negotiator, Democratic Senator Benjamin Cardin, warned
that it could be "a very tough month."
That outlook already was clear on Monday when Reid warned
that he was preparing a backup plan in case negotiations
stalled. His comments angered Republican leaders who accused him
of failing to bring a credible plan to the negotiating table.
In the meantime, Republicans have sharpened their message
and are pumping out statements of support for the payroll tax.
"One can only wonder why Senate Democrats are dragging their
feet and not coming forward with a plan," said House Speaker
John Boehner, the top Republican in Congress. "It's time for the
Senate to come forward and put their plan on the table."
A senior Senate Democratic aide said Reid's backup
legislation would include revenue increases, but it was
undecided whether those could include a controversial
millionaires' surtax or ending some tax breaks to the wealthy,
such as oil companies enjoying high profits.
House Republican leaders urged Democrats to propose a new
plan for covering the cost of the payroll tax cut and to do so
with spending cuts, not tax increases.
But many Democrats think Republicans should be the ones
taking steps toward compromise.
One Democratic aide, referring to last year's budget fights,
said: "They're (Republicans) so used to us coming to them and
caving in. They haven't realized that things have changed" and
"Democrats are now in the stronger negotiating position."